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The role of voluntary carbon offsetting in a post-Paris world

Alberto Carrillo, Head of Climate Business Engagement at WWF International, discusses the remaining emissions gap following COP21 and the future for companies in science-based target setting and voluntary carbon offsetting. Carrillo leads WWF's climate and business efforts at the global level and is a member of the Steering Committee of the Science Based Targets initiative. If you are interested in hearing more from Alberto Carrillo, please join us at our Grow to Zero Conference>>

A couple of months ago, the adoption of the Paris Climate Agreement was in the headlines of every major news outlet around the world. The Paris Agreement represents a major landmark, not only because of its significance as the first truly global climate treaty, but also because of the unprecedented mobilization of state and non-state actors in creating the right conditions to facilitate the adoption of a text that was agreed to by over 190 countries.

This unprecedented mobilization is tangible at every level. At the country level, for instance, over 187 countries have submitted their plans for contributing to the objective of the UN Framework Convention on Climate Change. This represents over 95% of the territorial greenhouse gas (GHG) emissions and includes all major emitting countries.

At the non-state level, the myriad of commitments is also encouraging. A thousand cities have committed to either reduce their GHG emissions by 80% by 2050 and/or to go 100% renewable; 114 global companies committed to set GHG emission reduction targets in line with the level of ambition required to keep global warming below 1.5ºC/2ºC; over 50 companies have committed to procure 100% of their electricity from renewable sources; and a number of financial institutions have announced their commitments to start decarbonizing their portfolios.

Understanding the emissions gap

While the adoption of the Paris Agreement and the commitments submitted by countries represent a significant step in the fight against climate change, the amount of ambition is still insufficient to keep global warming at a level that is safe for the most vulnerable communities and critical ecosystems on the planet.

According to a number of independent assessments, the commitments submitted by countries in COP21 in Paris are likely to lead to a level of warming of 2.7ºC to 3.5ºC by the end of the century.

According to the Fifth Assessment Report (AR5) of the Intergovernmental Panel on Climate Change (IPCC), holding the increase in global temperatures to less than 2ºC compared to pre-industrial temperatures requires peaking global GHG emissions before 2020. And rapidly reducing emissions thereafter so that global emissions in 2050 are at least 49% to 72% below the level of emissions in 2010. Keeping global warming below 1.5ºC requires an even more rapid decarbonization that involves phasing out CO2 emissions from industry and energy-related sources before 2050 and reaching net zero emissions for all GHG gases within the next 50 years.

The role of companies in closing the emissions gap

Based on these scenarios, there is a gap between the level of emissions that countries have committed to and the emissions trajectory that climate scientists predict is necessary to keep global warming within 1.5ºC or 2ºC. Closing this gap requires more ambitious commitments by governments, but also, significant action by non-state actors, including the business sector.

Companies must do their part in accelerating the transition to a low carbon economy. If companies don’t get on a low carbon path soon, achieving a world safe from climate change will be out of reach.

According to data by CDP, 80% of the largest global companies already have voluntary emission reduction or energy targets of some form. However, the level of ambition of these targets is seldom in line with the level of decarbonization that scientists indicate is necessary to meet our long-term temperature goal.

Based on this premise, CDP, the UN Global Compact, the World Resources Institute and WWF launched the Science Based Targets initiative. This joint effort provides guidance and tools for companies to align their emission reduction targets with climate science and encourage companies to commit to science-based emission reduction targets. At the time of publication, 120 companies have committed to set science-based targets and a growing number of companies have already developed and communicated their targets.

The role of offsetting in science-based target setting

A carbon credit represents a volume of verified and certified emission reductions – typically one metric tonne of CO2e – generated from an activity (e.g. a project or program) that reduces GHG emissions against a pre-defined baseline that has often been validated to ensure additionality.

The transaction of carbon credits between entities to meet emission reduction targets or carbon neutrality goals has been common practice. Under the mantra of ‘measure, reduce, and offset’ companies have accounted for the use of offsets as part of their emission reduction efforts along with other measures, including energy efficiency projects and renewable energy procurement.

GHG emission trajectories that are consistent with the goal of keeping global warming below 1.5 or 2ºC, translate into a global carbon budget that represents a de-facto emissions cap for the whole economy. Science-based target setting methodologies allot this finite carbon budget to companies based on different allocation principles.

Under this context, the use of carbon credits to meet a company’s science-based emission reduction target represents, at best, an impact neutral instrument from a global carbon budget perspective. In a scenario in which all sources of anthropogenic GHG emissions need to be phased out, projects that generate carbon credits are required to happen in addition to the science-based reductions by companies, and not instead of them.

A new role for carbon offsetting?

High-quality emission reduction projects like those certified under Gold Standard, provide a multiplicity of sustainability benefits that go beyond climate mitigation. Some of them contribute to building more sustainable livelihoods, some contribute to preserving biodiversity and natural resources, and some support the attainment of the Sustainable Development Goals adopted by governments last year. Carbon offsetting has provided an additional source of financing for these projects, and in some cases, this additional finance stream has given them the feasibility required to be implemented.

At the global level, we are not only facing an emissions gap, but also a finance gap for climate and for other sustainability objectives. Some studies suggest that current climate finance provides between 30% to 60% of the 100 billion USD that countries have pledged, and this represents only a fraction of the financial requirements to meet global mitigation and adaptation goals.

With this perspective, it is important that leading companies not only scale up their efforts to reduce GHG emissions in line with science, but also that they contribute to closing the finance gap according to their respective capabilities and responsibility.

Results-based finance could provide a foundation for companies to contribute to climate finance goals, and could potentially be the basis for other instruments that effectively contribute to climate and sustainability goals.

Gold Standard has entered into collaboration with the partners of the Science Based Targets Initiative to explore the role of businesses in financing additional emissions reductions outside of their own operations or supply chain. This collaboration will provide further means for the private sector to accelerate global decarbonization and could potentially provide a new benchmark for corporate climate leadership.